Global value chains and labour markets - wages, employment or both: input-output aproach

This article examines the overall effect of global value chains (GVCs) on labour market outcomes, namely wages and labour demand. The analysis exploits the World Input-Output Database (WIOD, 2016 release) covering 43 countries and 54 sectors from 2000 to 2014. GVC involvement is measured by the recently developed GVC participation indexes (based on both backward and forward linkages) and relative GVC position (Wang et al., 2017a, 2017b). The estimates employ the three-least-squares method. The results indicate that GVC position is negatively correlated both with wages and with employment, while the effect of GVC participation as such depends on whether backward or forward linkages are considered. We find some heterogeneity between countries (middle- versus high-income) and sectors (manufacturing versus services). Importantly, the labour market effect of involvement in GVCs is different from the channel of traditional trade in which the production process does not cross national borders. The R codes for calculation of input-output measures of GVC are provided.